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Fresh property supplies may lower capital values

DUBAI — More supply in Dubai’s residential market will aggravate the oversupply situation and will continue to put downward pressure on capital values, property analysts at Landmark Advisory warned on Wednesday.

“This issue will be exacerbated due to the fact that 2010 saw significant postponements in delivery with roughly half of the 50,000 or so units we had expected to be handed over, delayed,” said Saeed Hashmi, head of Valuation and Advisory at Landmark Advisory.

Capital values across all segments of the property market in Dubai and Abu Dhabi continued to decline during the fourth quarter 2010 with new supplies entering the market, the consultancy said.

Over the fourth quarter, capital values declined by 5.8 per cent and 1.4 per cent for apartments and villas respectively, with rents declining by 7.5 per cent and 3.4 per cent.

However, according to Jones Lang LaSalle, or JLL, Dubai real estate market is expected to witness lower than the expected fresh supply across all the segments in 2011 that will be good as it will help smooth out cycle. “The amount of anticipated new supply is decreasing due to tighter government control, official cancellation of projects, decreased liquidity and rephasing of projects by developers.”

Although total supply continues to increase, Dubai is past the peak of its annual pipeline of new supply. Abu Dhabi is still approaching the peak for new supply, JLL said. Hashmi said while capital values did decline, there was actually a significant spike in apartment leasing volumes across the quarter due to a combination of relocation demand from other emirates in the UAE, coupled with people within Dubai looking to take advantage of declining rents.

“Capital value declines due to oversupply are stymieing the amount of potential purchasers into the market and while it now makes sense for companies to consider owner-occupation, liquidity constraints are preventing this being witnessed on a large scale,” Hashmi said.

In Abu Dhabi, while the market is in fact currently undersupplied, it continues to behave as if it is oversupplied, said Hashmi.

According to him, the newly created demand in Abu Dhabi is contingent on other markets, most notably Dubai’s. “Thus, capital values and rents are falling. Transactions levels in Abu Dhabi remain low.” The fourth quarter of 2010 was ‘a transitional quarter’ for Abu Dhabi, as asking prices finally started to reflect reality, down in some developments up to 17 per cent compared to the third quarter. Rental declines were also witnessed, with a six per cent decline – resulting in a cumulative fall of 31 per cent over the year. As seen in previous quarters, the steepest declines occurred off-island and in low quality areas.

Hashmi said while capital values and rents continued to fall in the final quarter, sentiment overall has improved and there are signs of investors reconsidering the UAE, in particular Dubai, as a place to invest again.

Michael Michael, Director of Sales at Landmark Properties, recently said that there had been a definite increase in interest from overseas clients since the end of last year, especially from investors from countries within the GCC or Eastern Europe.

Analysts at JLL believe an addition of a 25,000 new units would boost Dubai’s total residential stock to around 335,000 in 2011.

CB Richard Ellis also predicted a mix of positive and negative sentiment entering the property market in 2011.

“Oversupply will remain a fixture for the foreseeable future in both the office and residential sectors but some of the negativity may be offset by forecasts of a significant economic recovery over the next two years,” it said. — [email protected]

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